What Happens in the Case of a Bond Selling for $1,000

question 98

Multiple Choice

What happens in the case of a bond selling for $1,000 that can be converted to 20 shares of stock that are currently selling for $45 per share?

• A) The bondholders will choose to convert.
• B) The stock will go up to $50 per share.
• C) The bond's price will go down to $900.
• D)The bond price is unaffected by the stock price.

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Definitions:

Economic Profit

The variance between an enterprise's aggregate income and total outlays, taking into account both clear and assumed costs.

Short-Run Equilibrium

The state in a market where supply equals demand within a limited time frame, before any long-term adjustments take place.

Long-Run Equilibrium

A state in which all factors of production and outputs are optimal, allowing for all economic agents to have no incentive to change their behavior.

MC

A term often short for Marginal Cost, which is the cost added by producing one additional unit of a product or service.